Electronic banking and IT in banks

Prepared by:
Biswajyoti Kashyap (MCI16005)
Pritish Das (MCI16011)
Ankit Agarwal (MCI16017)
Merupranta Saikia (MCI16023)
Sagar Das (MCI16029)
Saurav Halder (MCI16030)
IT has simplified the banking process.
 What is Information Technology?

Information Technology, also referred to as

IT, is the use of systems (especially
computers and telecommunications) for
storing, retrieving, and sending information.
IT in banking
• The Banking industry in India has experienced radical changes since
independence. With the improvements in technology and
automation, the banking sector has become highly competitive today.
• To survive and grow in the changing market scenario, banks are opting
for best in class and latest technologies. Information Technology (IT)
has become the base of the recent financial sector reforms and has
helped the banks in developing more flexible structure that can
respond quickly to the dynamics of a fast changing market.
Importance of IT in banking
• Implementation of reliable techniques for control of risks
• Helps the financial intermediaries to reach geographically distant and
diversified markets.
• The customers can view the accounts, get account statements and
transfer funds by just punching on few keys.
• Better market infrastructure
• This has facilitated E-banking
 What is E-Banking?
• A method of banking in which the customer conducts transactions
electronically via the Internet.
Because of E-banking banks now offer services like:

•Credit Cards/Debit Cards

•ATM
•E-Cheques
•EFT (Electronic Funds Transfer)
•DeMAT Accounts
•Mobile Banking
•Telephone Banking
•Internet Banking
Benefits of E-banking (To the customer)
• Anywhere Banking
• Anytime Banking
• Brings down “Cost of Banking” to the customer over a period a period
of time.
• Cash withdrawal from any branch / ATM
• On-line purchase of goods and services including online payment for
the same.
Benefits of E-banking (To the bank)
• Presents the bank as technology driven in the banking sector market
• Inter-branch reconciliation is immediate thereby reducing chances of
fraud and misappropriation
• On-line banking is an effective medium of promotion of various
schemes of the bank, a marketing tool indeed
• Integrated customer data paves way for individualized and customized
services
Major Trends that bring out importance of
information technology in banking sector:
1. E-cheques- E-cheques (Electronic Cheques) are a form of electronic
tokens designed to make payments through the internet and
performs the same functions as a conventional paper cheque.
2. NEFT and RTGS- National Electronics Fund Transfer (NEFT), is a
nationwide fund transfer system that can move funds from an
individual’s bank account to any other bank account within the
country. Real Time Gross Settlement (RTGS) transfers money from
one bank to another on a real time and on gross basis.
(The difference between NEFT and RTGS is that RTGS is only for an amount exceeding Rs. 2 lakhs
and the former is for transactions of any amount)
Continued

3. Point of Sale (PoS) terminals- PoS terminals are electronic

devices, which are used to process (Dr. and Cr.) card payments at
retail locations. It can be considered as a computerized replacement
for a cash register.
4. Mobile Banking- Mobile banking was introduced in 2002. Today, a
customer can perform, a number of functions like checking account
balance, transferring money, making a fixed/recurring deposit,
recharging a phone, paying different kinds of bills, etc. with the help
of a smartphone and internet.
What is Computer Based Information System
(CBIS)?
• A computer- based information system, or CBIS, uses computers to
collect, process, store, analyze and distribute information for a
specific purpose, such as meeting a business objective.

• Computers in the banking sector have enhanced customer service and

productivity regarding account management, Electronic Transactions,
Web-based Banking, etc.
Advantages of CBIS (For the Customer)
• Facility to inquire and view the transactions in the account.

• Remote terminals (ATMs) at various sites connected to the respective

branch, enabling the customer to make inquiries regarding his accounts,
on-line.
• A 24-hour service through which inquiries regarding balances and
transactions in the account can be made over the phone

• Through Electronic Banking (E-Banking) customers can make online

payments with more ease then ever.
Advantages for CBIS (For the bank)
• Availability of a wide range of inquiry facilities, assisting the bank in
business development and follow-up

• Immediate replies to customer queries without reference to ledger-

keeper as terminals are provided to Managers and Chief Managers
• Automatic and prompt generation of reports

• Fast and up-to-date information transfer enabling speedier decisions,

by interconnecting computerized branches and controlling offices.
Advantages of CBIS (For the employees)
• Accurate computing of cumbersome and time-consuming jobs such as
balancing and interest calculations on due dates
• Automatic printing of covering schedules, deposit receipts, pass book,
freeing the staff from performing these time-consuming jobs, and
enabling them to give more attention to the needs of the customer

• Signature retrieval facility, assisting in verification of transactions,

sitting at their own terminal
• Avoidance of duplication of entries due to existence of single-point data
entry
 AUTOMATED
CLEARING SYSTEMS
 AUTOMATED
CLEARING
SYSTEM

CHIPS CHAPS CHATS

CLEARING HOUSE INTER BANK
PAYMENT SYSTEM(CHIPS)
Financial transactions such as:
• Foreign and domestic trade services
• International loans
• Syndicated loans
• Foreign exchange trade settlements, etc.

This system has a direct interface with the swift system

 CLEARING HOUSE AUTOMATED PAYMENT
SYSTEM(CHAPS)
• Automated system set up in UK which ensures immediate setllement of
payments.

• CLAERING HOUSE AUTOMTED TRANSFER SYSTEM

(CHATS)
• CHATS provide the inter bank transfer facility in HONGKONG
• Provides services such as:
Same day inter bank settlement
Instant order conformation
Enquiry facilities
Electronic fund
management
DIFFERENT SYSTEMS FOR ELECTRONIC FUND MANAGEMENT

ECS RTGS

CBS CTS

ATMs NEFT
ELECTRONIC CLEARING SYSTEM
ECS is a retail funds system to effect payments such as utility bills, dividends, interests,
etc.

Features
• ECS supports both inward and outward transaction processing in electronic form
• The process of electronic clearing is similar in all aspects with that of cheque based
clearing except it is in the form of electronic instructions instead of cheques
• ECS also follows the Net settlement approach
• Facilitates collection of charges(if any) from customers through ECS.
• The data is processed at the Service Post Office level on behalf of all the Post Offices
attached to the service Post Office.
REAL TIME GROSS SETTLEMENT
RTGS is an electronic payment system where payment instruction are processed on a real
time basis and settled on a individual basis without netting the debits against credits.
Features:
• Settlement of interbank and FOREX settlement
• Big ticket funds transfer
• Minimisation of credit risk, etc.

AUTOMATED TELLER MACHINES

• Channel for cash management of individual customers

• Generally used for cash deposits and withdrawal, however funds can also be transferred through
ATMs
NATIONAL ELECTRONIC FUNDS TRANSFER
NEFT is a system similar to the RTGS system, however it deals with only smaller size
transactions.
Features
• Transfer of funds without any partipating banks
• Both intra-bank and inter-bank transactions
• Quicker transfer of funds, etc.
CORE BANKING SOLUTIONS
• CBS are computer based banking application(softwares) which works on a platform
and handles the different functions of the bank, such as:
• Recording of transactions
• Updating the balances
• Calculation of interest and application of interest,etc.
CHEQUE TRUNCATION SYSTEM

• CTS is a system of cheque clearence and settlement between banks based on electronic
data and/or images without the need for exchange of physical cheques and negotiable
instruments like demand drafts, pay orders, dividend warrants,etc.

Features
• Faster realisation of cheques
• Better cash management
• Lower cost in the long run
• Reconciliation and reduction in clearing frauds
SOME OTHER SIMILAR METHODS/SYSTEM:

• IFSC
• INTERNET BANKING
• COMPUTERISATION OF CLEARING OF CHEQUES
ENABLING TECHNOLOGIES OF MODERN BANKING IN

E-COMMERCE AND BANKING

INTRODUCTION

Today “Electronic Commerce” is a buzz word in all the trade, industry and
government fora the world over. Some believe it is a mere hype created by some
interested parties, while most of the others believe it is a genuine phenomenon
which is drastically redefining not only the parameters of Technology and Trade as
we know, but also the very basis of our thinking and the way we lead our life. The
fact of Electronic Commerce has permeated into every aspect of our life today.

Electronic Commerce has been around for the last two decades in some form or
the other, but the new force that is driving Electronic Commerce is the Internet,
which is revolutionizing the way companies around the globe conduct business.
Internet based electronic commerce is playing a critical role in addressing
strategic, mission critical business needs of the companies and hence the
companies are making it an integral part of their business strategies. 
According to a survey conducted by Nasscom, E-commerce transactions in the
country would grow phenomenally to Rs. 2500 crore in 2000-01 and to Rs. 10,000
crore in 2001-02.  Globally, according to a survey conducted by IDC, currently the
electronic commerce over the Internet is some $26 billion, while it is expected to
reach about $1 trillion by 2003-05.
 
These mind boggling, figures are sufficient for any sane individual, even vaguely
connected to industry, trade or commerce, to understand the potentially radical
influence that E-commerce is having on human society.
 
All this is due to the Internet, a simple network of networks of computers across the
globe, linked through various means: cable, satellite, telephone lines etc. based on
the TCP/IP protocol. This network has not only altered the way we conduct trade and
commerce, but also fundamentally altered the way we communicate, the way we live
and to some extent, the way we think.
Now, we shall briefly look at:
 

 Definition of electronic commerce

 Critical issues for electronic commerce
 Role of banks in electronic commerce
What is E-commerce ?

E-commerce is buying and selling on electronic networks, primarily the Internet.

This could involve trade of tangible goods/services similar to traditional
commerce, or intangible items like music, information and involving digital transfer
etc.

These business transactions occur

either as business-to-business,
business-to-consumer, consumer-to-
consumer or consumer-to-business.
Amazon
Flipkart
 Financial Issues
CRITICAL ISSUES FOR ·        customs and taxation
E-COMMERCE ·        electronic payments
 
There are issues, which are critical for Legal Issues
E-commerce to develop. Although there ·        uniform commercial code
·        intellectual property protection
are significant areas of overlap, they can
·        privacy
be divided into three groups:

financial issues, Market Access Issues

·        communications infrastructure
legal issues and
·        technical standards
market access issues.
·        security
ROLE OF BANKS IN ELECTRONIC COMMERCE
 
Electronic banking is one of the truly widespread avatars of E-commerce over the
world. One of the benefits of e-banking is that it allows the customers to deal with
monetary transactions without being physically present at the bank.

There are three modes of e-banking:

· ATM networks,
· Internet Banking – net banking/transferring transactions on the internet,
· Smart cards – where Internet banking is taken further with a swipe of the smart
card taking care of security in the transactions and eliminating physical processes.
Important features of internet (e) marketing are:

Internet
Marketing Interconnectivity Interactivity

Individual
Information preference Integrity
Internet
  marketing or Online advertising
Internet based marketing is an important segment in e-commerce. It plays a
vital role in the supply chain process of exchange of goods/services between
the producer and consumer.

Part of a series on Internet marketing-

o Search engine optimization (SEO)
o Affiliate Marketing
o Social media marketing
o Email marketing
o Content marketing through Blogging, Photo, Video etc
Interconnectivity
Internet is recognized as a network of networks. The search engines assist the
user of the internet to have access to required information. Interconnectivity
offered by the internet helps a customer to have information/access to large
number of diverse markets. One important feature is that it gives information
and access about international markets as well.
Interactivity
 
Internet not only allows access but also allows interface and interactivity among
users. In view of this interface, it assists both the producer/manufacturer as well
as customers to have better communication and choices. It allows the marketer
to customize and focus even on individual customers in large markets. On the
other hand the customers are also benefitted because of their interface with the
marketer, peers and different web sites to make their selection.
Information
 
The availability of large number of websites on the internet enables the
customers to decide on price, choice of products, designs etc., On account of
innovative methods of marketing the customers can have access to information
covering wide range of areas.
Individual
  preference
The interconnectivity, information and interface provided by the internet network
assists the customer with wide choices. Based on his/her preference and
capacity a customer can decide on his preference to choose and order.
Integrity
 
With the changing time and requirements and on account of security issues and
also to safe guard the users from cyber crimes, internet provides tools to check
the authenticity of the data and its providers. In view of many fake offers &
advertisements, the internet users should be cautious. They should not provide
any sensitive information like details of PIN, passwords and other information to
any unauthorized sites, not only to safeguard their interests, but also not to
allow cyber criminals to have access to this information.
 SUPPLY CHAIN MANAGEMENT
or
The management of the chain of supply
Supply chain:
Network of organizations and business process for procuring
materials, transforming raw materials into the finished products
and distributing the finished products to the customers.

Supply chain management:

Integration of suppliers , distributors and customer coordination
into one well integrated process. The management of the flow of goods and
services which involves the movement and storage of raw materials, of
work-in-process inventory, and of finished goods from point of origin to point
of consumption.

Supply chain management process:

Information system that automate the flow information between
a firm and its suppliers in order to optimize the planning ,
sourcing , manufacturing and delivering of products and services.
How Information System Help Supply Chain
Management ?
Information from supply chain management system helps firms

 Decide when and what to produce, store and move

 Rapidly communicate with others
 Track the status of orders
 Check inventory availability and monitor inventory levels
 Reduce inventory, transportation and warehouse cost
 Track shipments
 Plan production based on actual customer demand
 Rapidly communicate changes in product design
Challenges
 Demographic trends
 Economic circumstances
 Connectivity of existing networks
 Environmental issues
 Existing transport infrastructure
capacity
 Environmental issues
 Travel patterns and trip rates
 Air quality and noise pollution
 Socio-economic profile
PROBLEMS OF SUPPLY CHAIN MANAGEMENT-

 Delays in production, distribution etc.

 Expensive Inventories
 Lack of partners’ coordination
 Uncertainties in deliveries
 Poor demand forecast
 Disturbance with production
 Poor quality
Cyber Marketing: Limitations-

Internet marketing is also exposed to quite a few problems. Some of them are
in-built and others are external problems.

• Digitization: For cyber marketing, the products should be in digitized format.

This process requires manpower, skills and technical knowledge. The
digitization is one of the issues faced by e marketing.

Shopping experience: Customers especially in India are more used to touch

and feel experience as against click and view mode of shopping.
CONTINUE-
Cyber crimes: Despite the popularity of internet and e commerce and e-
marketing, on account of different cyber crimes users are concerned about e
marketing.

Security: While shopping on internet, customers are required to furnish

sensitive personal data which are being shared by marketing companies and
create inconvenience to the customers and also pose threats to their privacy.

While customers can have faster access to information and details about the
range of products, customers are cautioned to be careful on account of various
issues and risks associated with cyber marketing.
What is CRM?
CRM (Customer Relationship Management) is the strategy for building,
managing and strengthening loyal and long-lasting customer
relationships. CRM is a customer centric approach based on customer
insight.
Types of CRM
• Strategic CRM
It aims at enhancing knowledge about the customer and use this knowledge to improve and
customize the interactions with customers to maintain long term relations with them.
• Operational CRM
It is mainly focused on automation, improvement and enhancement of business processes
which are based on customer supporting.
• Analytical CRM
Its primary goal is to develop, support and enhance the work and decision making capability
of an organisation by determining strong patterns and predictions in customer data and
information which are gathered from different operational CRM systems.
• Collaborative CRM
Incorporate external shareholders such as suppliers, vendors, and distributers and share
customer information across the organisation.
Benefits of CRM

• Creates brand value.

• Helps in designing new products.
• Improves Customer Service.
• Enhances Communication.
CRM in Indian Banking System
In India, the technology enabled CRM is still at a developing stage.
Different Banks are at different levels of CRM adoption and
implementation and majority of them can be considered to be at
preliminary stages.
CRM in Indian Banking System
• Operational CRM is the most wide spread.
• Collaborative CRM is most evident in internet banking, mobile
banking, ATM functions, POS devices and initiatives like availability of
pass  book  printing  machines  to  enable  customers  to update their
passbooks themselves. SMS alerts at various significant customer
service events are also increasing.
• Analytical CRM is being utilized but not by all banks. 
Limitations of CRM
• Expensive.
• Loss of records.
• Explosion Of customer privacy.
• Lack of knowledge.
Integrated Communication Network
for Banks Security and Control
Systems
Need
• Banks are exposed to many risks in their activities relating to
management of funds on line banking services. credit card and other
e- banking products/services are also facing risks which are associated
with the use of IT tools, channels, platforms. Banks should have a
good and effective control system to handle IT related issues and
risks.
Types of Control System
• Preventive Controls: This type of control stops errors or irregularities.
Good design/ screen lay out reduces or stops the errors at the time of
coding data or entering data from source document.

• Detective Controls: Identification of errors or irregularities happens

after they occur. For example: An input validation program identifies
data input errors.
• Corrective Controls: These types of controls remove or reduce the
effects of errors and irregularities after they have been identified. If
any data is corrupted during transmission the communication
software (with inbuilt control) may request for retransmission of
information/data.

• Physical Controls: In computerized environment, the control of access

is very important in view of the confidential and sensitive
information/data which are being processed/stored at the data
processing center.
• Output controls: Hard copies of all important reports generated
should be preserved properly as per the bank’s record maintenance
policy.

• Internal Controls: To ensure that the accounting data and other

sensitive customer information are accurate and reliable a system of
internal controls are built in the computerized systems. An effective
and efficient internal control would assist the bank management to
run the bank’s operations in a better controlled environment.
Disaster Management
• As part of disaster management, the computer room, data centers
need to be checked for proper functioning of fire extinguishers,
smoke detectors and other devices. Backup tapes and other data
should be stored in off sites. Regular checks should be carried out to
ensure that such back up CDs and other tools/data can be used in
case of an emergency/contingency.
 CYBER CRIME
Cybercrime is defined as a crime in which a computer is the object of
the crime (hacking, phishing, spamming) or is used as a tool to commit
an offense. Cybercriminals may use computer technology to access
personal information, business trade secrets or use the internet for
exploitive or malicious purposes. Criminals can also use computers for
communication and document or data storage. Criminals who perform
these illegal activities are often referred to as hackers
• What are the major threats banks are faced with today?
• While there are numerous threats aimed at bank systems and their
customers, one of the biggest threats, and often one of the hardest to
detect, is that of malicious, careless and compromised users. These
employees, contractors and partners are already inside the banks
secure perimeter and have legitimate access to its sensitive data and
IT systems.
• Is secure banking an unrealistic goal?
• Even though banks are a popular target for hackers, they also are among the most
sophisticated enterprises in the world from a security perspective. This is largely
because security and online banking go hand-in-hand.
• Consumers want the confidence that their financial information will be protected,
regardless of how it’s accessed. The banks have reputation, brand and highly
sensitive personal data to protect, and in the main, they take that very seriously.
• What we don’t hear about are the numerous attempts to breach banking systems
that are successfully prevented. This is down to the investments that the banks
have made in systems and processes to defend their customer’s personal data.
Information System
• From the organizational management perspective, information
system can by defined as a collection of data, information,
information flow and circuits, procedures and also means of handling
information, meant to help establish and accomplish organizational
objectives.
• It is mandatory, in the context of the present economic evolution, but
also of society in general, to underline the remarkable importance of
a well-developed information system, having a proper information
support, in banking institutions, but also other organizations,
regardless their nature
• Objectives of banks’ IS Security Policy:
Confidentiality: The confidentiality of customer information and sensitive
financial data should not be revealed to unauthorized persons. The IS security
should ensure that the confidentiality is maintained
Integrity: Banks’ IS security should protect banks information system from
accidental or unauthorized and deliberate alteration or deletion of
information
All the required controls should be in place to ensure availability of reliable
and correct information to the authorized users and persons. These controls
include access controls by PIN, pass words, proper approved authentication
control, and effective internal controls.
FRAUD MANAGEMENT
In the digital age, Financial crime against banks and other financial
services institutions is accelerating rapidly. Through 2020, card fraud
worldwide is expected to increase to $183.29 billion. Banks and Capital
Market firms must improve their defenses, but too many false positives
and inefficient investigative processes drive up operational costs. The
benefits of fraud identification and loss prevention must be balanced
with the customer-service experience, as disparate fraud systems can
complicate detection and slow service delivery.
• There are instances of fraud that adversely impact banks on a regular basis
and go unnoticed or unattended. All these cases of fraud result in sizeable
monitory losses for the banks once they go undetected.
• Fraud events raise questions around the credibility of the fraud deterrent
processes and the technological capabilities of the institution.
• The external attacks on relatively newer channels such as internet banking,
SMS banking and mobile banking result in customer losses and hamper the
brand image of the concerned entities.
• Regulatory non-compliance constitutes another oft-witnessed outcome due
to the lack of necessary efforts and capabilities to proactively monitor frauds
• The number of bank frauds in India is substantial and it is increasing
with the passage of time and technology. According to a survey by
Ernest & Young, 2012 the banking segment witnessed around 84% of
reported fraud cases within the financial services sector. The society
expects accountability, fairness, transparency and effective
intermediation from banks.
• Three Elements of Fraud Detection
• Theft: The theft act involves the actual taking of cash, inventory,
information, or other assets. Theft can occur manually, by computer,
or by telephone.
• Concealment: It involves the steps taken by the perpetrator to hide
the fraud from others. Concealment can involve altering financial
records miscounting cash or inventory, or destroying evidence.
Conversion: It involves selling stolen assets or transforming them into
cash and then spending the cash. If the asset taken is cash, conversion
means merely spending the stolen funds.
• The entire setup of fraud management solutions should be built
around information technology solutions with the functionalities
shown. There should be a Fraud Control Policy and assessment to
identify the vulnerabilities. There should be fraud detection and
monitoring mechanism.
Ways To Detect Fraud
• Customers with deposit, checking, credit card and personal loan
accounts have usage patterns that deep analytics can combine and
check against its own fraud indicators. For instance, a bank's fraud
prevention system can be set up to trigger a temporary hold on
unusually high transactions until the charges are confirmed with the
account holder.
• Bank fraud detection indicators for new accounts might include
application anomalies, unusually high purchases of popular items or
multiple accounts being opened in a short period with similar data